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Inside the Market’s roundup of some of today’s key analyst actions

With its recent $360-million equity issuance, CAE Inc. (CAE-T) is likely to further bolster its competitive position in the sector and “emerge stronger from the pandemic,” according to Desjardins Securities analyst Benoit Poirier.

Resuming coverage of the Montreal-based company following the financing, which he called “opportunistic” after its “transformative” US$1-billion purchase of L3Harris Technologies Inc.’s defence training business, Mr. Poirier raised his rating for its shares to a “buy” recommendation from a “hold” previously, citing a “solid growth pipeline and encouraging civil recovery ahead.”

“On a pro forma basis, we estimate net debt to EBITDA should decrease to 2.3 times in 4Q FY21 (from 2.9 times) and 2.3 times at closing of the L3Harris acquisition in 4Q FY22 (from 2.6 times),” he said. “Leverage remains below CAE’s bank covenant (not public, although management previously noted that it was above 4.0 times), which provides some flexibility in the near term to deploy capital toward organic and M&A opportunities in the Civil segment.

“Management is not stopping here as additional opportunities exist to bolster its competitive positioning in Civil. While we believe it is unlikely that CAE will expand its presence in the FFS market given its dominant position, additional M&A opportunities exist in the training market in our view. The severity of the COVID-19 pandemic has created opportunities for CAE to partially or fully acquire the training assets of some legacy carriers while securing long-term training agreements. Such transactions could enable CAE to significantly expand its addressable market.”

Mr. Poirier maintained a $40 target for CAE shares after incorporating the equity issuance into his forecasts. The average target on the Street is $41.50, according to Refinitiv data.

“With the recovery in the civil sector in sight, we believe CAE’s growth strategy is even more relevant to bolstering its competitive positioning in the years to come.” he said. “Recall that CAE is in advanced discussions with potential customers to secure new training outsourcing contracts by the end of FY21.”


Empire Company Ltd.’s (EMP.A-T) $357-million deal to buy 51 per cent of grocery store chain Longo’s and its e-commerce service Grocery Gateway accelerates its growth in the urban and suburban markets of Ontario, said ATB Capital Markets analyst Kenric Tyghe, emphasizing the region is the largest and fastest growing in the country.

“Empire will be able to leverage its national infrastructure and capabilities to unlock non-customer facing synergies and other benefits centred around procurement (leveraging Empire’s purchasing power), logistics (introducing Longo’s warehouse and logistics capabilities into Empire’s network will improve the customer experience and net delivery costs for both businesses) and real estate (leverage Empire’s expertise to deliver on the optimal store expansion plan),” he said in a research note. “Longo’s free cash flow is expected to self-fund its annual CAPEX program of $40.0-million per year in the final two years of Empire’s Project Horizon.”

With the deal, Mr. Tyghe raised his fiscal 2022 revenue and EBITDA estimates to $29.36-billion and $2.19-billion, respectively, from $28.49-billion and $2.17-billion. His adjusted earnings per share forecast remains $2.80 “with dilution from the share issuance on the transaction fully offset by a combination of the earnings contribution and repurchase activity (the transaction is expected to be accretive in FY2023).”

Keeping an “outperform” rating for Empire shares, he raised his target to $46 from $45. The average on the Street is $44.70.

“Overall, we consider the acquisition of Longo’s to be positive to our thesis given (i) it increases the Company’s penetration in urban core of key Ontario markets, such as the GTA, where the Company believes its underrepresented (ii) improves the Company’s loyalty offering and (iii) is expected to be accretive to EPS in the first full fiscal year after closing, which will offset some of the dilution from the ramp of the Company’s Voilà program,” he said.

Elsewhere, National Bank Financial’s Vishal Shreedhar trimmed his target to $44 from $45 with an “outperform” rating.


AirBoss of America Corp.’s (BOS-T) new contract with the U.S. Department of Health and Human Services is a “game changer,” according to Stifel analyst Maggie MacDougall.

On Tuesday, shares of the Newmarket, Ont.-based rubber product manufacturer soared 24.6 per cent after it announced a deal worth up to US$576-million for the distribution of nitrile patient examination gloves.

“AirBoss has become a trusted supplier to the U.S. Federal Government in both PPE and Defence, and we believe that there has been a step change in its prospects for additional large contract awards going forward,” said Ms. MacDougall.

With the deal and the recent release of 2021 guidance, including revenue of $630-710-million, adjusted EBITDA margin of 15-15.5 per cent and adjusted earnings per share of $1.80-$2.19, the analyst now sees “improved visibility” on earnings potential through her forecast period. She raised her 2021 EBITDA projection to $104.3-million from $55.8-million and 2022 to $93.6-million from $62.3-million.

“We believe that AirBoss Defense Group has undergone significant change in terms of market opportunity since merging with Critical Solutions last year, and that the company will continue to capitalize on its strengthened position as a valued supplier to the U.S. Federal Government in the future,” said Ms. MacDougall.

Maintaining a “buy” rating for AirBoss shares, she hiked her target to $50 from $27. The average on the Street is $40.

Other analysts raising their targets include:

* CIBC World Markets’ Scott Fromson to $42 from $30 with an “outperformer” rating.

* Cormark Securities’ David Ocampo to $41.50 from $24 with a “buy” rating.

“We were exceptionally pleased with the commentary on the Q4/20 release, specifically, the large bid book, and yesterday’s announcement validates BOS’ strong government relationships and ability to convert its outstanding bids to firm orders,” he said.

* TD Securities’ Tim James to $44 from $33 with a “buy” rating.

“We believe that AirBoss’ strong balance sheet, dividend, and growing exposure to global demand for personal protective equipment make it an undervalued investment,” said Mr. James. “We believe that its Defense subsidiary is increasingly well-positioned to drive stronger earnings power, while its legacy rubber compounding and engineered product segments regain momentum.”

* Canaccord Genuity’s Yuri Lynk to $51 from $29 with a “buy” rating.

“AirBoss Defense Group’s (ADG) diverse product offering and supply chain expertise continue to drive massive new contract wins,” said Mr. Lynk. “We recommend the stock because of the enhanced visibility afforded by these contracts, the upside potential we see in the $175-million bid funnel and Blast Gauge, the recovery we’re witnessing in the Rubber Solutions segment, and the company’s net debt-free balance sheet.”


In response to its friendly acquisition bid by Australia’s Evolution Mining, Canaccord Genuity analyst Tom Gallo downgraded Battle North Gold Corp. (BNAU-T) to “sell” from “speculative buy.”

On Monday, the Melbourne-based company revealed its $343-million offer in an attempt to double down on Ontario’s Red Lake gold district.

“This is a very positive outcome, in our view,” said Mr Gallo. “George Ogilvie and his team took the reins of this company following the noteworthy collapse of the previous entity, Rubicon Minerals.

“We believe the group has effectively de-risked and advanced what was at one point a very broken asset.”

Seeing “considerable untapped exploration upside,” Mr. Gallo cut his target for Battle North shares to $2.65 from $3.50. The average on the Street is $3.48.


Westport Fuel Systems Inc.’s (WPRT-Q, WPRT-T) stronger-than-expected fourth-quarter financial results “sets the stage for growth” in 2021 and beyond, according to H.C. Wainwright analyst Amit Dayal.

“We believe the company is ramping its efforts to participate in the adoption of hydrogen fuel opportunity,” he said. “Management believes hydrogen use in an internal combustion engine with an HPDI 2.0 fuel system, can be a very competitive option to reduce CO2 emissions in long-haul transportation. We believe the company is uniquely positioned to provide existing CNG/LNG customers with a path to hydrogen offerings. Investors should factor in capex and investment needs as HPDI 2.0 sales ramp beyond Europe, and to support new technology development and commercialization. We believe near-term risks to execution could stem from any continuing pandemic-related challenges as well from potential impact from the current global auto supply-chain issues. The company has taken steps to improve its balance sheet supported by lower cost debt and government subsidies.”

On Monday, the Vancouver-based company reported revenue of US$83.9-million, up 12.9 per cent year-over-year and topping Mr. Dayal’s US$69.-1million, driven by a 32-per-cent increase in original equipment manufacturer (OEM) revenue. Earnings per share rose to 3 US cents from nil a year ago.

Seeing the quarter “setting the company up to revive revenue growth in 2021 and beyond,” the analyst increased his target to US$16 from US$5 with a “buy” recommendation. The average is currently US$10.90.

“Our price target increase is partly supported by factors including: (1) expectations of around 40.1-per-cent top-line growth in 2021 (vs. a decline of 17.3 per cent in 2020) and continued revenue momentum in forward periods as HPDI 2.0 footprint continues to expand; (2) contribution from Weichai partnership in China becoming a more meaningful part of the story; (3) potential participation in the hydrogen market; and (4) heightened regulatory support as the transportation industry adapts to lower-emissions technology platforms,” he said. “We expect the heavy duty trucking segment to be the key performance driver for the company as it expands beyond serving only one primary customer in Europe. In this context, we believe the company’s partnership with Weichai provides access to all major Chinese trucking brands and OEMs. In line with this, we are now projecting revenues to grow from $353.8-million in 2021 to $1.1-billion in 2030 (nine-year CAGR of 13.9 per cent) vs. our prior expectations of revenues growing from $353.8-million in 2021 to $666.1-million in 2030 (nine-year CAGR of 7.3 per cent).”

Elsewhere, Cowen and Co. analyst Jeffrey Osborne increased his target to $9.50 from $4.50 with a “market perform” rating.


In response to a share price jump of almost 50 per cent thus far in 2021, Credit Suisse analyst Andrew Kuske downgraded Vancouver-based Mercer International Inc. (MERC-Q) to “neutral” from “outperform.”

“A key question facing Mercer International (MERC) is the duration of the current pricing environment – let alone a continuation of upward moves in pulp markets along with historically high lumber prices,” he said. “Over multiple timeframes, MERC delivered solid stock performance that included: 50 per cent, 133 per cent, 101 per cent and 25 per cent for 2021 year-to-date, since September 30, 2020, last 12 months and since January 1, 2020, respectively. Naturally, in our view, the pricing performance is impressive over multiple timeframes driven largely by improvements in pulp pricing. As per our past work, MERC’s sales mixed looked to be somewhat advantaged on a pro-cyclical basis given significant sales exposure to the Chinese market. Part of that reality looks to have played out with the stock’s performance and the risk-reward remains positive, but less so than previously.”

Mr. Kuske sees Mercer “favourably positioned as a large NSBK producer”, however he emphasized “pulp pricing movements require nimble trading – especially in a COVID-19 environment.”

After raising his earnings expectations through 2022, he increased his target for its shares to US$18 from US$16, topping the US$16.40 average.

“There are some clear positives associated with pulp markets, however, a question of pricing sustainability is a critical factor for MERC’s stock market performance. We also remain watchful of FX moves given MERC’s production locations in Canada and Germany being the underlying expense exposure,” he said.

Separately, Mr. Andrew Kuske increased his Acadian Timber Corp. (ADN-T) to $18 from $16 with an “underperform” recommendation. The average target is $17.10.

“Acadian Timber (ADN) is very well placed to benefit from funds flow rotation from parts of the forest products complex that benefitted from (and continue to do so) extremely high commodity prices,” he said. “Positively, there looks to be some signs of pricing transmission in the value of timberlands from robust forest products pricing. Naturally, the timber sector is more defensive in nature along with being a more dividend focused area for capital allocation. Given the past ownership change and management internalization along with financial performance, there may be potential for a future dividend increase from the existing asset base without considering any extreme changes in pricing or harvests. Such an increase would be viewed positively; however, our current financial forecasts do not look supportive for that activity. Continued positive price realizations translating into some degree of margin expansion, among other factors, may alter that financial reality.”


Waterloo Brewing Ltd. (WBR-T) offers investors compelling growth prospects in the resilient beverage alcohol sector, according to Canaccord Genuity’s Luke Hannan.

Forecasting 3-year forward revenue and EBITDA compound annual growth rates of 27.0 per cent and 35.2 per cent, respectively, he initiated coverage with a “buy” rating, touting its “fast-growing, margin-accretive contract manufacturing business.”

“With an expansion project set for completion in the coming months and an influx of demand from existing and prospective contract manufacturing customers, we believe Waterloo has clear line-of-sight for filling co-packing capacity in its state-of-the-art facility, a revenue stream that is also margin-accretive,” he said. “Our math suggests the company could deliver $127-million in total co-packer revenue once fully ramped, well above the $15-million in co-packing revenues witnessed in F2020.”

“Waterloo’s owner brand portfolio represents a resilient revenue base that has grown steadily over the years, owing largely to the portfolio of higher-growth Waterloo-brand craft beers and its license to produce and sell LandShark Lager. Additionally, its value offering, Laker, remains the price leader in the segment, resulting in share gains in a category that is dominated by large, multinational brewers. We believe the stability of Waterloo’s performance in both segments, combined with its exposure in the nascent and fast-growing ready-to-drink category, provides a growing revenue base to support the growing dividend, which has seen five increases in the past five years, leading to an average dividend yield of 2.0 per cent.”

He set a target of $8.50 per share, exceeding the $7.56 average.

“Additionally, the company has exposure to the growing craft beer segment through several owner brands, while also expanding its share in the value segment through its Laker family of brands,” said Mr. Hannan. “Waterloo boasts a veteran management team with decades of experience in the brewing industry, which together with members of the board owns 43 per cent of the shares outstanding, leaving management well aligned with shareholders. The current valuation of 9.0 times our fiscal 2023 EBITDA estimate represents a compelling entry point for investors, in our view, given that peers trade at 11.5 times.”


In other analyst actions:

* CIBC World Markets analyst Mark Petrie hiked his BRP Inc. (DOO-T) target to $100 from $79 with a “neutral” rating. The average on the Street is $94.73.

The backdrop for BRP remains strong. Consumers are bringing record demand, and dealer inventory remains scarce. We are raising our F2022 (calendar 2021) forecasts based on a more bullish view on how long the favourable conditions will sustain, leading to less promotional pressure and better margins. Our Q4/F21 estimates are unchanged and remain above guidance and at the top end of consensus. However, we view the positive backdrop as being largely priced into the shares, and continue to see risk to how the competitive and consumer landscape evolves as the pandemic fades,” he said.

* iA Capital’s Frédéric Blondeau increased his target for units of BTB REIT (BTB.UN-T) to $4.75 from 44 with a “buy” rating, while Laurentian Bank Securities’ Yashwant Sankpal raised his target to $4.50 from $3.25 with a “hold” recommendation. The average is $3.67.

“We think BTB’s cash flow visibility is improving. The leasing momentum experienced by BTB over the last two quarters gives us further confidence in its ability manage future lease maturities and any occasional hick ups in the portfolio,” said Mr. Sankpal. “With the uncertainty around rent abetment and bad debt reduced considerably, stock market investors have begun to have a re-look at commercial REITs and this should result in a lower cost of capital for BTB and allow it to acquire properties on an accretive basis. We will continue to watch how BTB translates these positive trends into steady FFO per unit growth.”

* ATB Capital Markets analyst Nate Heywood bumped up his target for AltaGas Ltd. (ALA-T) to $24 from $22 with an “outperform” recommendation. The average is $22.72.

“Before market open on March 16th, AltaGas announced the close of its medium-term note offerings for an aggregate $550-million,” said Mr. Heywood. “The proceeds will be used to repay current indebtedness under its existing credit facilities, which had $1.2-billion drawn as of year-end 2020. Overall, we view the offering as positive given the Company’s ability to secure attractive interest rates over the medium-term and expected $3.6-million annual cash savings. The balance sheet maintenance initiatives bode well with our current investment thesis, as we expect the business to continue to focus growth efforts on utility-based cash flows with near-immediate capital returns ahead of material debt repayments. Given no change to total leverage, we continue to view the stability in cash flows from the utilities business as supportive to higher leverage multiples; however, management’s efforts to reduce leverage and maintain the balance sheet should be positively received.”

* ATB’s Tim Monachello raised his Total Energy Services Inc. (TOT-T) target to $6.50 from $5.50 with an “outperform” rating. The current average is $5.10.

“Following largely in-line Q4/20 results on March 11, 2021, we increase our Adj. EBITDAS estimates higher by roughly 11 per cent through 2023 as a result of 1) an improving Compression and Process Services (CPS) outlook given a rebound in bookings in Q4/20 and our view that significant Canadian LNG related bookings should begin to materialize by year-end and continue over our investment horizon; and 2) slightly lower costs across TOT’s platform,” said Mr. Monachello. “These changes are partially offset by tempered expectations for TOT’s Contract Drilling Services (CDS) segment. All told, TOT remains a pragmatically-managed and well diversified energy services company that is poised to broadly benefit from a cyclical recovery in North American field activity, and should generate significant free cash while maintaining a strong balance sheet (2.2 times net debt/EBITDAS excluding mortgage loans) – offering investors 15 per cent, 23 per cent and 26 per cent free cash flow yields in 2021, 2022 and 2023 respectively.”

* Scotia Capital analyst Phil Hardie raised his target for Trisura Group Ltd. (TSU-T) to $133 from $126 with a “sector outperform” rating. The average is $135.25.

* Morgan Stanley analyst Andrew Steinerman cut his target for Thomson Reuters Corp. (TRI-N, TRI-T) to US$92 from US$98 with an “equal-weight” rating. The current average is US$94.70.

* RBC Dominion Securities analyst Geoffrey Kwan raised his target for AGF Management Ltd. (AGF.B-T) to $8.50 from $7.50, exceeding the $7.64 average. He kept a “sector perform” rating.

* RBC’s Neil Downey bumped up his NorthWest Healthcare Properties REIT (NWH.UN-T) target by a loonie to $14 with a “sector perform” rating. The average is $13.54.

* RBC’s Luke Davis increased his Cardinal Energy Ltd. (CJ-T) target to $2.25 from $1.75, maintaining a “sector perform” recommendation. The average is $2.06.

* TD Securities analyst Tim James raised his GFL Environmental Inc. (GFL-T) target to $41 from $39 with a “hold” rating, while BMO Nesbitt Burns’ Devin Dodge increased his target to US$36 from US$34 with an “outperform” rating. The average is $38.41.

* JP Morgan analyst Chris Turnure raised his Emera Inc. (EMA-T) target to $55 from $54 with a “neutral” rating. The average is $58.71.

* National Bank Financial analyst Michael Parkin cut his target for Kirkland Lake Gold Ltd. (KL-T) to $56 from $65, keeping a “sector perform” rating. The average is $71.98.

* National Bank’s Michael Robertson raised his Ag Growth International Inc. (AFN-T) target to $48 from $46 with an “outperform” recommendation. The average is currently $44.14.

* iA Capital Markets analyst Michael Charlton raised his Leucrotta Exploration Inc. (LXE-T) target to $1 from 85 cents with a “speculative buy” rating, topping the 89-cent average.

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